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Three-Year Moving Average

Data collected on the yearly registration for a seminar at GIPS are shown in the following table:
Year 1 2 3 4 5 6 7 8 9 10 11
Registrations (000) 4 6 4 5 10 8 7 9 12 14 15
a) Develop a 3-year moving average to forecast registration from year 4 to year 12.
b) Estimate demands again for years 4 to 12 with a weighted moving average in which registration in the most recent year are given a weight of 2 and registration in the other 2 years are given a weight of 1.
c) Graph the original data and the two forecasts. Which of the two forecasting methods seems better?

Solution Preview

(a) Basically, you calculate the 3-year moving average by adding year 1, 2, and 3 registrations and dividing by 3, and then input that as the year 4 forecast (4.67). For the Year 5 forecast (5.00) you drop off the first year and add in the latest year's actual registrations, years 2, 3, and 4 and divide again by 3, and so on year after year.

Year Registration 3-yr MA 3-yr weighted ...

Solution Summary

This solution shows how to calculate a 3-year moving average and a 3-year weighted moving average. Then the two forecasts are compared and the more suitable one is chosen by means of MAD (mean average deviation).